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Housing sector not the only risk: RBA

Marty Silk

The Reserve Bank says the property sector isn't the only potential risk for Australia's financial system.

RBA head of financial stability Luci Ellis says the central bank is monitoring the system as a whole, rather than just housing.

"There are things going on in other markets domestically that are worthy of consideration," she said at the Financial Risk Day 2016 Conference in Sydney on Friday.

"That's not to say that we think these things are red-light, shining risks, but we look at everything and we're alert to the fact that risk could come from where you least expect it."

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Another area of concern has been growing household debt, spurred by record low interest rates, held at 2.0 per cent in March.

But she admitted leverage had been rising, she assured it was not yet near an unsustainable or risk level.

"Borrowing is running at a higher rate than household income growth more recently," she said.

"But it's simply not true to say that it's been skyrocketing the way that it did in the late 1990s and early 2000s, there's a clear inflection point."

Australians with mortgages had an excellent defence to risk shocks in offset accounts, Ms Ellis said, which allow borrowers to make overpayments into their mortgage.

"The Australian offset account is the most tax-effective form of precautionary saving I have ever seen," she said.

"Not everyone with a mortgage is ahead of schedule, but many are, and those offset balances are growing rapidly. That makes those borrowers more resilient to shocks and the whole system safer."

However, Ms Ellis warned that further financial deregulation could lead to trouble down the track.

She used the example of the US where the 2007 financial crisis was preceded by the repeal of the Glass-Steagall Act, which banned commercial banks from the investment business, and the lifting of leverage restrictions on banks.

"If you find a way to deregulate a second time, for example by reversing a subsequent tightening or finding a new part of the system to liberalise, you might be courting trouble," Ms Ellis said.